India’s mobile payments regulator is considering extending the deadline for imposing market share caps on the UPI payments rail, according to sources familiar with the matter. The National Payments Corporation of India (NPCI) plans to introduce a 30% cap on the market share of individual UPI ecosystem participants. This decision is likely to benefit Google Pay and PhonePe, which currently dominate the market for UPI payments in India.
UPI has become the most popular way to send and receive money and make payments in India, with over 11 billion transactions per month. PhonePe currently holds a 49% market share by volume, followed by Google at 37.4%. Paytm, their closest competitor, has seen its share drop from 11% to 8% due to regulatory challenges.
The NPCI had initially planned to enforce the market share cap in January 2021 but postponed it to January 1, 2025. However, it is now considering further extending the deadline after concluding that there is no practical solution to address the issue. The final decision is yet to be made, and changes may be made to the plan by the end of the year.
This decision is likely to face criticism from other players in the ecosystem who have urged the NPCI to follow through on its commitment. Some companies have proposed solutions, such as incentives that benefit smaller players. A parliamentary panel has also called for countering the dominance of PhonePe and Google Pay and promoting local entities in the fintech sector.
However, implementing an incentive plan that unfairly differentiates against PhonePe and Google Pay could have negative implications for the ecosystem and investor community. U.S.-based investors, including Accel, Lightspeed, Tiger Global, and BlackRock, are among the most prolific investors in Indian public firms and startups. The choices made by regulators in India have already raised concerns among investors.
The RBI recently held a meeting with key players in the UPI ecosystem to discuss strategies for scaling UPI infrastructure, expanding the product portfolio, and addressing challenges in the ecosystem. The NPCI is considering another extension to the deadline, as reported by Indian news outlet Moneycontrol.
The market share cap is not the only challenge facing the NPCI and the RBI. They have also discussed introducing more incentives for UPI service providers. Unlike credit card issuers, UPI largely functions at no cost to merchants, posing financial challenges for ecosystem participants.
In conclusion, the extension of the market share caps deadline for UPI payments in India is expected to benefit Google Pay and PhonePe. However, this decision may face criticism from other players in the ecosystem and raise concerns among investors. The NPCI and RBI are also discussing other challenges in the UPI ecosystem, including the need for more incentives for service providers.
